At Jefferies’ 2023 Private Internet Conference, Jason Greenberg, Co-Head of Global Technology, Media, and Telecom Investment Banking, shared insight into the current investment landscape and the challenges associated with dealmaking.
Activity may continue to lag in the short term, amid high interest rates and reduced business confidence, but Greenberg foresees a steady recovery in M&A over the next twelve months.
Challenges and Opportunities in Today’s Market
Greenberg acknowledges the complexities of the current dealmaking environment, but also emphasizes the potential rewards for those able to capitalize on opportunities.
“It’s the hardest time to get deals done,” Greenberg stated. “The benefit is that the deals you do now may be the ones that slingshot you into a more successful market.”
He drew parallels to past economic downturns, including the dot-com crash and Global Financial Crisis, where strategic deals led to significant success in subsequent boom markets.
Private Equity Makes A Comeback
Greenberg spoke to new signs of life in private equity, following a very quiet 24 months. Committed capital to private equity funds today is at its highest in years, suggesting a strong interest in acquisitions. Despite significant dry capital, Greenberg expects private equity’s reemergence to be slow, marked by deals that don’t require high leverage.
“We’re seeing private equity back into the market,” he said. “Private deals tend to lag behind public markets by twelve to eighteen months.”
Greenberg also warned that investors are eager to see action, and that could push the M&A market to speed up.
“There’s a point at which you’re being paid to deploy capital,” he shared. “Pretty soon, I think you’ll see the M&A market loosen and begin to accelerate.”
Strategic Buyers and Financial Sponsors: A Shifting Landscape
Greenberg also discussed how the balance between strategic buyers and financial sponsors has changed, as sponsors have become a larger part of the M&A market. Looking ahead, Greenberg predicts a temporary pause in the growth of sponsors, though he thinks their percentage of deals will continue to grow in the long term.
“If you’re a sponsor thinking about the longevity of your fund, you have to recognize that deals done in recent years were completed in an environment with a cost and quantum of debt that isn’t available today,” Greenberg noted. “If the market returns to where it was, and fed funds rate drops considerably, the quantum of debt will expand again.”
Navigating Uncertainty to Come
Greenberg finished by commenting on rising interest rates and their impact on private equity. He stressed the need for funds to set realistic expectations, recognizing that the money they’ve invested might not generate as large a return as in the recent past.
“It feels like rates will be higher for longer than people believe,” Greenberg said. “If that’s the case, private equity funds need to actually recognize investments. They may not see the three-times multiples of recent years, but there will still be good outcomes.”
Greenberg’s comments offer a clear view of a complex market. As interest rates remain high and the market equips for a resurgence of dealmaking, his insight is a valuable resource for private equity funds and investors navigating uncertain times.